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Contextual issues The administration of the health system has been divided into the following levels: Ministry of Health HQ District Health system (DHO, District Hospitals, Health centres General Hospitals Central Hospitals The core level of the reformed Zambian health system is the district which includes community-based health workers; Health posts and centres and the district hospital

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Health Financing Policy (1) Zambias health care financing policy treats basic health care as a basic human right that should be availed to all citizens and equally accessible to all. The policy assumes the existence of a well defined and systematically implemented Basic Health Care Package

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Health Financing Policy (2) To ensure sustainable financing of the health sector domestic resources from general taxes constitute the dominant source and anchor of financing health service Provision The goal is to increase GRZ allocation to health from 12 to at least 15 percent of the national budget in line with the Abuja and Maputo Declarations.

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Health Financing Policy (3) External financing remains an important ingredient in Zambias resource mobilisation strategy. The preferred mode of providing donor support to health has been through pooling of funds in a single basket to implement a jointly agreed upon strategic plan and annual action plans. The initial district basket has now been expanded to include capital expenditures, training institutions, statutory boards, technical assistance and human resource development. Public Private Partnerships are also taken to be an integral part of Zambias health care strategy as they help in ensuring that resources are maximized in the delivery of health care.

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Financing Sources Since the inception of health reforms, national allocations to the health sector have been stable at around 11.6 % of GRZ discretionary budget or 1.9 % of public health expenditure to GDP The financing gap has been bridged by donors accounting for more than 45 per cent of total public health care expenditure. The Public Per Capita Health Expenditure is around US$11 though the PET report puts at over US$ 30 taking into account Global and Pepfar funds for HIV User fees have in the past contributed about 4% and used at point of collection. Since 2006 April user fees have been scrapped in the rural areas. Preparations are under way to introduce health insurance beginning with civil servants and scale up later to all formal sector employees An marked tax of 1% on interest on saving account is place which yields around USD 2 million per year

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Key issues in external aid The key issues to consider with regard to external funding from the recipients view point include: Adequacy Sustainability Predictability Alignment to national systems Flexibility fungibility Different modes of support (DBS, SWAps, Projects & loans) fair differently in this light

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Adequacy & significance Globally, health aid increased to more than $10 billion in 2003 from $2.6 billion in 1990 mainly attributable to initiatives to address HIV & malaria. Needless to say, Zambia is a beneficiary in the increase with most funding for funding for HIV, Malaria and immunization coming from global initiatives including global funds and Gavi

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Adequacy & significance Note the increase in donor aid assistance over the years from only USD 3 million in 1997 to over USD 69 million for internal funds The increase mainly attributable to global initiatives like the global funds The small & volatile share of govt share in the district basket (though govt bought drugs and is the only financier of salaries

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Adequacy & significance Donor is significant and indispensable for some components of the budget such as the district basket and ART program Is donor aid adequate or even too much? Misappropriation / misuse? Inter country comparison of per capita expenditure on health? Diminishing returns to health expenditure? Socio-economic determinants?

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Sustainability Sustainability entails a countrys capacity to fund the full costs of a particular program, sector, or economy It implies the capacity of a country to accommodate the expenditures initially financed with those grants within their own domestic envelope An example funds to finance immunization currently estimated to cost USD 7m. GRZ should gradually attain vaccine procurement independence by 2012 The key question is can govt gradually take over financing the ART program whose total cost would displace a huge percentage of public health expenditure

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Sustainability It is possible for Government to take over the costs of some programs like immunization in the medium term Bigger programs like ART are likely to remain donor dependent for a long time. The question is for how long. Is development of financial sustainability plans an answer?

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Predictability & Volatility Often health planners depend on vague indications of future aid commitments in the budget preparation process Though donors make substantial aid commitments, data show that commitments consistently exceed actual disbursements. Other sources of aid volatility include exchange rate fluctuations, administrative delays and policy decisions by donors Donor preferences can change from one year to the next in response to changes in behavior in the recipient country or to political events in the donor country.

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Predictability & Volatility Problems can also begin with donors, which may have burdensome procurement and reporting requirements. Conditionality may occasion stoppage of disbursements in the event of failure to attain agreed upon benchmarks. Donor commitments are short term, but spending obligations are long term Countries face significant risks if they establish health systems that cannot be maintained if donor preferences change.

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Alignment to national systems The budget process begins with dissemination of a call circular and the green paper containing macroeconomic and the medium term fiscal framework. The fiscal framework contains revenue projections and sector ceilings for the coming three years The sector then applies a resource allocation formula to share resources between levels and geographical areas The ceilings together with other program specific technical planning information are disseminated during national and provincial planning meetings

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Alignment to national systems The GRZ ceilings are a combination of domestic revenue and DBS. From this view point DBS is the most aligned mode of support The MTEF requires capturing all sources of finances and planners need to develop a table like one in the next slide

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Alignment to national systems Funds from domestic revenue and DBS provided in the green paper SWAp commitments obtained through snap surveys whose results are fairly accurate Projects and loans from project documents and are the most problematic Global funds go through 3 principle recipients of which only MOH funds are easy to capture. The rest is mainly off budget Besides global funds are not aligned to budget calendar and require own reporting and M & E arrangements

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Alignment to national systems Other project funds like presidents emergence even harder to capture as almost all of it is implemented through NGOs A small proportion is channeled through the basket and for the rest educated estimates are done to capture a portion of it in the national budget. Hard to tie to activities and programs in the budget especially at national level

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Alignment to budget processes As a result of the above reasons, etimates from 14 countries show that 30% are not recorded in the B/P 20% recorded in B/P but not in budget 30% earmarked to projects recorded in budget 20% General budget support

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Flexibility Earmarking tends to increase the rigidities of government budgets The total health budget may show no funding gap but freedom to move funds to underfunded priorities is very limited Donor funding skewed in favor of programs like HIV/AIDS and malaria while other equally important programs like maternal health are neglected.

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Fungibility Fungibility of aid is the diversion of funds to public expenditures other than those for which the aid is intended. For example: a donor gives aid to a country for primary health care. The recipient may choose to move domestic funds to referral hospitals because primary care is already funded. Though this may be optimal, problems can arise when donor funding to primary care reduces as re –allocation from higher level care may be difficult

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Aid harmonization To better coordinate donor funding, the preferred mode of funding for the health sector is the SWAp Shared vision and priorities for the sector between with CPs, ensuring government ownership and leadership One Performance assessment framework and joint M & E efforts between government & partners A comprehensive sector development strategy reducing asymmetry in funding health programs Enhances budgeting process and public expenditure management by capturing all funding sources and expenditures, putting resource allocation decisions into a MTEF based on national priorities Can be aligned new aid instruments, macroeconomic and public sector management, NDPs & achievement of the MDGs

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Aid harmonization The ultimate preference is DBS when conditions which ensure health remain a priority are in place DBS would furnish an opportunity to build economic infrastructure like schools, roads, communication facilities without which the goal improving health status will remain elusive DBS will strengthen macroeconomic management and minimize foreign exchange market destabilization occasioned by off-budget support.